Page 37 - pwc-lease-accounting-guide_Neat

Scope

Analysis

In this scenario, there would still be two units of account at inception, and consideration would be
allocated to each unit of account based on stand-alone selling prices at that date. However, because the
lease would not commence until June 30 when the subsection is identified, any amounts allocated to
the lease component would not be recognized until June 30. Accounting for arrangements that (1)
involve the right to use an asset to be specified in the future and (2) contain more than one unit of
account, can be challenging. The application of the model depends on the facts and circumstances of
each arrangement, which should be carefully evaluated.

In ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, the FASB provided
guidance on an optional transition practical expedient to not evaluate under ASC 842 existing or
expired land easements that were not previously accounted for as leases under ASC 840. Instead,
reporting entities that elect this practical expedient would continue their current accounting for land
easements that existed prior to the entity’s adoption date. All land easements arrangements entered
after a reporting entity’s adoption date are required to be evaluated under ASC 842. This practical
expedient can be elected independent of all other practical expedients. See LG 10 for further
discussion of practical expedients and transition considerations.

2.3.2.2 Right to direct the use of the identified asset

The second criterion in the control assessment is the right to direct the use of the identified asset.
Decisions about how and for what purpose an asset will be used are the most relevant factors to
consider when assessing which party directs the use of the identified asset. A reporting entity should
give the most weight to the factors that have the greatest impact on the economic benefit to be derived
from that asset.

Figure 2-2 illustrates the analysis that should be used to determine which party has the right to direct
the use of an identified asset.

2-16